Difference between the Rights of a Stranger to Consideration and a Stranger to Contract

A stranger to consideration can sue. However a stranger to contract cannot sue. There is some difference between English law and Indian law. Under English law, even a stranger to consideration cannot sue. A stranger to contract cannot sue both under the Indian and English laws.

Example:

A dealer purchased tyres from the Dunlop Tyre Co. and sold them to a sub-dealer on the condition that the sub-dealer shall not sell the tyres below the Dunlop’s list price and shall pay as damages to the Dunlop Tyre Co. for every tyre sold below the list price. The Dunlop Tyre Co. filed a suit against S to recover the damages. The Court held that the Dunlop Tyre Co. could not file a suit as it was not a party to the above contract. The contract was between the dealer and the sub-dealer and not between the Dunlop Tyre Co. and the sub-dealer [Dunlop Pneumatic Tyre Co. v. Selfridge & Co.].

Exceptions:

If the above rule is applied very strictly, it is likely to cause great hardship in many cases. Hence, our law recognizes the following exceptions to the rule that a stranger to a contract cannot sue. Under the following cases, even a stranger to a contract can file a suit.

(i) Beneficiary of a trust:

A trust is created for the benefit of a beneficiary. Hence, a beneficiary can file a suit to enforce his right even though he is not a party to the contract.

Example:

A transferred his property in trust to his neighbour for the benefit of his son. After A’s death if the trustee (neighbour) refuses to give the benefit of the property to the son (beneficiary), the son can file a suit against the trustee to compel him to give the benefit. [ M.K. Rapai v. John]

(ii) Marriage settlements of minors:

In India marriages are arranged by the parents for their minor sons and daughters in a large number. There is a custom is Mohammedans to pay some money for expenses, e.g., Kharcha-e-Pandan i.e., expenses for betalbox or pin money. The bridge or the bridegroom can file a suit to recover the amount although she or he may not be a party to the contract.

Example:

The father of the bridegroom agreed with the father of the bride to pay a certain amount for Kharcha- e-Pandan to his daughter-in-law. The bride and bridegroom both were minors at the time of marriage. The father-in-law later on refused to pay the amount promised. The daughter-in-law filed a suit to recover the amount. The Privy Council held that although she was a stranger to the contract (as the contract was between her father and father-in-law), yet she could sue.

The Privy Council pointed out that strict application of the Common Law doctrine of privity of contract to a country like India would cause great hardship as in India, marriages are contracted for minors by parents or guardians. [ Khwaja Mohd. Khan v. Hussaini Begum]

It should be noted that the above exception may not be applicable now as in India the law has fixed the marriageable age of boys at 21 years and of girls at 18 years.

(i) Family settlements for females:

Where provisions are made for the marriage or maintenance of a female member of the family on the partition of a Joint Hindu Family the female members have the right to enforce the contract even if they are not a party to the contract.

Example:

A distributed his property between his two sons on the condition that they would give maintenance allowance of Rs. 200 p.m. to their old mother. If the sons refuse to pay the amount, the mother can enforce her right in a Court of law although she is not a party to the contract.

(ii) Estoppel or acknowledgement:

Where a party by his conduct admits or acknowledges a liability, that party is deemed to be an agent of a third party and shall be estopped from denying his liability to the third party.

Example:

A deducted L.I.C. premium from the salary of his employee and admitted his liability to the L.I.C. The L.I.C. can recover the amount, although it is not a party to the contract.

(iii) Assignment of a contract:

Where a contract is assigned, the assignee can enforce the contract.

Example:

A assigned his insurance policy in favour of his wife. The wife can enforce it although she is not a party to the contract.

(vi) Charge created in favour of a person on specific immovable property:

Where a charge has been created in favour of a certain person on some specific immovable property, the beneficiary can enforce the charge.

Example:

A charge was created on the assets of the company in favour of the Debenture holders. The Debenture holders being the beneficiaries can enforce the charge if the company refuses to pay their claims.